Archive for February, 2010
The “shadow inventory” of bank-repossessed properties, as well as distressed mortgages facing foreclosure, will take nearly three years to clear at the current sales rate, according to a report from the credit rating agency Standard & Poor’s (S&P). The analysts add that during this period many servicers will likely shift their emphasis from mortgage modification to loan liquidation.
The “shadow inventory” of homes includes all delinquent loans and real-estate owned (REO) property that has not reached the market. REO property are foreclosed homes taken back by the bank for liquidation. As for the total amount of homes in the shadow inventory, Amherst Securities places the total at 7m. The Royal Bank of Scotland found 2.7m, and First American CoreLogic counted 1.7m.
S&P estimates the inventory to equal a 33-month supply of homes. Analysts added the estimate is actually conservative, as they did not assume homes not showing signs of distress would default and push the overhang of supply even further.
Furthermore, court delays, political pressure and servicing backlogs constricted the flow of foreclosures hitting the market to a trickle. These delinquent borrowers who have not received a foreclosure fuel the “rapidly” growing shadow inventory of properties, according to the report.
“Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market,” according to the report.
Another credit rating agency, Moody’s, showed that the underwhelming performance of the Home Affordable Modification Program (HAMP), which the US Treasury Department launched in March 2009 to give incentives to servicers for the modification of loans on the verge of foreclosure, will drive down housing prices another 8% from Q409 to the end of 2010.
According to the S&P report, homes are falling into serious delinquency faster than REO transactions are closing. The total balance of seriously delinquent loans reached well over $400bn through November 2009, while the balance of REO properties reached its peak in September 2008 and declined to $50bn. On average, $14.5bn of seriously delinquent loans or REO property liquidates each month. According to the report, it will take 29 months to clear this supply of homes:
The other four months worth of supply comes from re-defaults on delinquent loans currently cured – or brought back to current status through a loan modification. Following current trends, S&P analysts predict that 70% of the cured loans will re-default. The total balance of these re-defaulting loans and the current amount of serious distressed loans will reach $473.4bn, nearly 30% of the total outstanding balance on all privately securitized loans.
With the launch of HAMP, servicers shifted strategy from liquidation to modification. The amount of loans that progressed from seriously delinquent to REO fell to 28% in Spring 2009 from 58% in June 2008. In that time, seriously delinquent loans that cured went from 32% to 58%, according to the report. But analysts found that this shift was only temporary.
"We believe that the recent constriction in the supply of foreclosed homes on the market is a temporary one," claim the analysts.
"Loan modifications and the observed extension of time distressed loans remained as such may simply have delayed the inevitable, creating the demonstrated shadow inventory of troubled loans," they wrote. "Ultimately, the majority of the properties these distressed loans represent will likely have to be liquidated."
Write to Jon Prior.
The US Federal Reserve is sitting on significant paper losses on the real estate assets it acquired in the Bear Stearns rescue, with much of the red ink coming from debt used to back some of the most highprofile buy-out deals of the bubble years.
Among the debts weighing on the central bank's portfolio are those used in financing the acquisitions of Hilton Hotels, which is being restructured, and hotel operator Extended Stay, which is in bankruptcy, people familiar with the matter say.
The weak state of the American and European economies remains a risk to the global economy despite evidence of a recovery over the past year, a Reserve Bank official said today.
While the US had successfully stress-tested 19 of its largest banks in May, second-tier banks with heavy regional exposure to commercial property pose a threat to financial markets, RBA assistant governor Guy Debelle said in a Sydney speech. Similar risks exist for European banks.
Mortgage delinquencies of 60 or more days rose for the 12th straight quarter, hitting a record high 6.89% in Q409, according to market research by credit bureau TransUnion.
The rate of deceleration seen in previous quarters in the rise in delinquencies appears "short lived," the credit bureau said. Year-over-year, the delinquency rate is up about 50% from 4.58% delinquent in Q408.
TransUnion, one of the major US credit bureaus, conducts a survey of exactly 27m credit files from its total consumer base, or about one in every nine consumer files in its database of 250m consumer files each quarter, a spokesperson previously told HousingWire.
States with the highest delinquency rates in Q409 were led by Nevada with 16.19% delinquent. Florida came in second with 14.93% delinquent. North Dakota had the lowest delinquency rate of 1.84%, while South Dakota and Alaska came in only slightly higher at 2.46% and 2.84% respectively, TransUnion said.
Thirty-eight Metropolitan Statistical Areas (MSAs) showed decreasing delinquency rates since Q309, including Corvallis, OR; Lafayette, IN; and Sharon, PA.
"At a more granular level, variations in delinquency highlight the fact that the recession and the eventual recovery are both regional phenomena tied for the most part to localized house price conditions and unemployment levels," said FJ Guarrera, vice president of the TransUnion financial services business unit, in a press statement.
Guarrera added: "We're not out of the woods yet. The continuing rise in foreclosures, in conjunction with low consumer confidence in the housing market, continues to hinder housing value appreciation and impede recovery in the mortgage industry."
TransUnion projects the 60-day delinquency rate will peak between 7.5% and 8% over the course of 2010.
TransUnion previously projected the delinquency rate would come in just under 7% by year-end 2009. That estimate is not far off – by only 11 bps – after the rate rose to 6.25% in Q309 (illustrated below, from TransUnion's Web site), from 5.81% in Q209.
The bureau in December projected that delinquencies will drop nearly 3% by year-end 2010 to 6.39%; but that was when the year-end delinquency rate was expected to come in around 6.56% rather than the current 6.89%.
Part of the rise in delinquencies may come from a trend of more borrowers than ever before choosing to pay down credit card debt before making mortgage payments. TransUnion found the share of borrowers who were delinquent on their mortgages but current on their credit cards rose to 6.6% in Q309 from 4.3% in Q108. At the same time, the share of borrowers that were delinquent on credit cards but current on mortgages slipped to 3.6% from 4.1%.
Write to Diana Golobay.
There’s an e-mail making its way around the Internet calling attention to a piece purportedly written by syndicated columnist Charlie Reese that talks about the 545 people ultimately responsible for all of the woes currently being suffered by taxpayers in the United States. It turns out, according to this e-mail, that one hundred senators, 435 congressmen, one president, and nine Supreme Court justices are “directly, legally, morally, and individually responsible for the domestic problems that plague this country.”
Well, that sure eases my mind.
To know that only 545 people out of some 300 million Americans are the culprits behind all our woes is great news. You see, previous to this Eureka moment, I was scratching my head, looking around at the financial mess this country is in and asking myself, “Was it me?”
I mean, I could have learned a bit more about the market before I took that stock broker’s advice. I could have learned more about the company we trusted to invest my family’s 401K. I could have read up on the backgrounds of any of the politicians I voted for during any of the last 10 elections or so. I could have read the fine print on the HELOC my mortgage broker sold me to get me to 100% LTV so I wouldn’t have to put any money down on my mortgage, and found out about how quickly the interest rate would be jacked up. I could have put off a few purchases before my credit card companies jacked me up to the legal interest rate limit because my neighbor was late on his payment. I’ve been thinking lately that there are a lot of things I could have done that might have made the impact of this downturn a little less painful for me and my family.
But now that I’ve got this e-mail, I can rest easy in the fact that I can do what millions of other un- or under-educated Americans around the country are doing and blame it all on the government.
Sure, all but 9 of the 545 were elected by us voters, many of whom cast their vote for pork barrel promises and staunch support of socialistic welfare programs. Others fell prey to clever television ads or just voted along their party lines, with red for good and blue for bad. Or is it red for bad? I forget.
And that’s the point of e-mails like this. They offer us someone to burn at the stake, get us fired up about all the taxes we’re paying—without reminding us that they’re funding things that we asked for—and give us the opportunity to forget that it was, at least in part, our fault. Then they usually tell us what they’re selling. In politics, it’s almost always change.
Politics start with the promise of change but is driven by the willingness of the American public to forget. No one wants to remember the mistakes they’ve made, the many times they were duped into making a bad trade by a clever salesman. Arguments like that presented in this e-mail give us the opportunity to forget that this is our fault at the same time it gets us mad enough to vote for a change.
On the other hand, maybe it wouldn’t be so bad if Americans got mad. I mean really fired up about the sorry state of affairs they see around them. Maybe some of them would get so angry that they actually crack a book and learn something. Or write one and put forward a real solution. That’s a future I’d like to see. Americans getting better educated on what makes our system work so they can stand up intelligently and work for solutions instead of just huddling up with their friends on Facebook and chanting, “Burn it down!”
But then, I’m not in the business of selling ideas that would only work for someone who believed in the concept of personal responsibility, not when there are reportedly only 545 people in the prospect universe. I think I’d rather be a mortgage broker, or an appraiser even.
Next week: I’ll share an e-mail from someone who might really have a solution the mortgage industry could use.
The Federal Home Loan Bank of Seattle has launched a series of lawsuits against Wall Street banks, seeking to force them to buy back souring mortgage-backed securities.
In 11 separate lawsuits filed in late December in King County Superior Court in Washington, the Seattle bank alleges that it was misled by underwriters about the quality of $4 billion of securities it purchased as investments at the height of the housing boom.
The Seattle bank is seeking to force the firms to repurchase the securities, plus interest.
The $4 billion in securities represents the majority of private-label mortgage securities held by the bank, based on its most recent quarterly earnings filings. Private-label securities aren't backed by a government-related entity.
